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As trade optimism fades, Asian stocks slump and the dollar falls

The dollar stumbled on Tuesday, as renewed concerns about the impact of U.S. President Donald Trump’s trade policies on the global economic climate kept risk sentiment at bay.

European futures indicated a weaker opening, while Chinese stocks were flat. They failed to latch on to the strong Wall Street rally following a 90-day stop in the Sino-U.S. Trade War.

The S&P 500 futures and Nasdaq futures were both slightly lower during the afternoon of Asia, highlighting the cautious mood on the markets.

Christopher Hodge is the chief U.S. economics at Natixis. He said that a de-escalation of tensions was inevitable.

The tariffs are still going to be much higher than they were before and this will have a negative impact on the U.S. growth."

MSCI's broadest Asia-Pacific share index outside Japan fell 0.2% after reaching a session high of more than six months earlier.

The ratings agency Fitch estimates that the U.S. tariff rate has dropped to 13.1% from 22.8% before the agreement, but is still higher than it was in 2024.

Since Trump announced his tariffs at the beginning of April, the markets have been roiled by concerns about U.S. economic growth and a lack of progress on negotiating deals with its trading partners.

Since then, investors have withdrawn from U.S. assets and pushed safe havens such as the yen (yen), Swiss franc (franc suisse) and gold higher.

The dollar initially surged on Monday following the announcement of the pause in tit for tat tariffs. However, the dollar fell in the afternoon Asian trading session on Tuesday as the rally faded.

The U.S. announced it would reduce tariffs on Chinese imports from 145% to 30%, while China announced it would lower duties on U.S. imported goods from 125% to 10%.

The markets were relieved, despite the fact that there is still concern about how tariffs might affect the global economy.

Hong Kong's Hang Seng Index was down 1.67%, while Japan's Nikkei rose over 2% and reached its highest level since the 25th of February.

"Fundamentally uncertainty still persists, particularly around the possible pullback in corporate and consumer spending," said Charu C. Chanana. Chief investment strategist for Saxo, Singapore.

Institutional investors were mostly on the sidelines, and held a neutral stance on U.S. stocks. This opens the door to aggressive dip-buying on any retracement.

US INFLATION TESTS

Investors will now focus on the details of the contract and what happens following 90 days.

The U.S. Inflation data will come into focus later Tuesday.

Matt Simpson, City Index's senior market analyst, said that if we were to receive another set of soft CPI numbers, traders could refocus their attention on Fed policy, including the possibility of cuts, and this would take some steam off the dollar's recovery.

Trade relations between the United States and China have changed, leading traders to reduce Federal Reserve rate-cut bets. They expect policymakers to be less under pressure to ease interest rates in order to boost growth.

The traders are now pricing in 56 points of reductions this year. This is down from the over 100 points they were quoting during the peak of tariff-induced panic in mid-April.

The yields on U.S. Treasury bonds rose to an all-time high of one month on Monday, and they were still hovering around that level at the start of trading on Tuesday. The yield on the two-year bond was at 3.9873% while that of the benchmark 10-year bond was last at 4.4512%.

Bitcoin, the most popular cryptocurrency, was unchanged at $102,676 Tuesday. It is still above the $100,000 threshold it broke last week.

On Tuesday, oil prices eased after reaching a two-week peak in the previous session due to optimism about trade deals. Gold prices recovered some of their losses from Monday when they fell 2% as investors fled some safe havens.

(source: Reuters)